Does Equity Mispricing Influence Household and Firm Decisions?
AbstractQualitative literature on equity price bubbles has often emphasised the effects of mispriced equity on economic decisions. This paper investigates this issue quantitatively using two ideas. The first is that equity mispricing is transitory, and has no long-run effects on economic outcomes. The second is that there exist observables that are correlated with mispricing, but uncorrelated with changes in fundamentals. Estimates of mispricing appear to accord well with periods described as bubble episodes for the US. The effects of these shocks on household decisions are found to be statistically significant.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2011-06.
Date of creation: Dec 2011
Date of revision:
Find related papers by JEL classification:
- C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
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